-- JonathanHaskel - 07 Apr 2010

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Title Productivity and Innovation in UK Financial Services: An Intangible Assets Approach
Author Jonathan Haskel, Annarosa Pesole
Year 2011.2
Abstract Financial services are typically described as highly innovative (indeed excessively so
according to some commentators). However, it is hard to see this by many standard IO
innovation and productivity measures. Patenting for financial products in the UK is zero.
R&D as a fraction of sales in UK financial services is 0.02%, putting finance (on this
measure) less innovative than furniture manufacture (0.3%). Whilst measured labour and
total factor productivity growth have been quite rapid, there are doubts over measurement
and the residual nature of TFP growth leaves open the question of what drives financial
innovation. This paper looks at innovation in UK financial services by trying to bring
together the industry productivity/TFP literature with some of the case study evidence.
Case studies suggest that much financial innovation (a) can be readily copied and (b)
requires investment in product development, software, marketing, training and
organisational change. Whilst copying can be captured by TFP, these investments are
almost certainly not captured by conventional R&D. Thus we follow the Corrado, Hulten
and Sichel (2005) intangibles framework and measure the broad range of
intangible/knowledge assets that case studies suggest are important in finance. We
document that these investments are very large in UK finance, and that conventional R&D
understates them. Incorporating them into the growth accounting picture we show that the
method seems to capture much of innovation in financial services and changes the
productivity/TFP growth picture to give more intuitive numbers.
Type Paper
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*Haskel_Pesole_FinSvcs_Feb11.pdf: Haskel_Pesole_FinSvcs_Feb11.pdf
Remarks
Topic revision: r4 - 18 May 2011, JonathanHaskel
 

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